My apologies if this question has been asked and answered. I'm delaying SS benefits to age 70 which I will reach in a year. This will result in my benefits being 131.3% of benefits at FRA. How does the 3.6% COLA for 2012 affect this? It can't be as simple as adding 3.6% to 131.3% can it?

It's better than that. While the DRCs are additive, the COLA is compounded. You can multiply your benefit at full retirement age (PIA) by the 3.6% cola and then multiply by 131.3 to get your benefit at age 70.

Nonnie - I assume that you have already reached your FRA and therefore know what that benefit amount would have been? If so, then you would adjust that amount by the COLA each year during your delayed benefit period as you go along. Your expected delayed benefit amount remains as 131.3% of the inflation-adjusted FRA benefit, assuming you start at age 70. For example: original FRA benefit = $1,000/mo. FRA benefit with 2012 COLA adjustment = $1000 x 1.036 = $1036. Delayed benefit = $1036 x 1.313 = $1360.27. This would be your new expected delayed benefit amount projected to age 70.

"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard |
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"You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs

Mitchell777 wrote:I thought it was 1.33 * FRA. So it is 1.313 * FRA benefit to calculate your benefit at 70. If you stop working prior to 62, is the FRA benefit calculated as your estimated benefit at 62 * 1.313 ?

Mitchell777 wrote:I thought it was 1.33 * FRA. So it is 1.313 * FRA benefit to calculate your benefit at 70. If you stop working prior to 62, is the FRA benefit calculated as your estimated benefit at 62 * 1.313 ?

The estimate for your benefit at FRA that you receive from the SSA is based on your earnings history and assumes that you will receive your current income until you reach your FRA. If you quit working at 62, your benefit at age 66 will likely be less than the current estimate from SSA since your benefit calculation will not include the expected salary from age 63-66.

The delayed retirement credit is 2/3% per month for every month you delay after a FRA of 66. These credits are applied to the benefit you would receive at age 66. They are not compounded. If you wait 4 years until age 70, the benefit you would have received at age 66 would increase by 2/3 x 48 = 32%. Any COLA during your delay increases your age 66 retirement benefit.

Another question on DRCs. As I understand it, if you accumulate DRCs and take your benefit before age 70, you initially get only the DRCs as of the previous December. Example, I reach FRA in July 2011 and my PIA is $1000 - if I decide to collect at age 67 in July 2012, my benefit will reflect DRCs earned through the previous December which means 6 months or 4% = $1040. Then in Jan 2013, I will get credit for the remainder of DRCs (another six months or 4% = $1080). Will I get a lump sum payment making up the difference for the DRCs I earned but which were not credited to me when I filed but were credited 6 months later (roughly $40 X 6 months)?

I was just down to the SS office last week and while I knew that current year RDCs would be delayed, I didn't know exactly how it would be handled. I am starting benefits on my own record to replace spousals effective Dec, 2011 with payment in January, 2012. The Jan check would include DRCs through 12/2010 only plus the COLA and the Feb check would include all the 2011 DRCs plus COLA to bring the account current. After that the checks would be normal, ie expected DRCs of 31 months plus 3.6%.

In summary, they said the DRCs are caught up on the January check paid in Feb because the January check is for the prior year Dec.

Of course, I will be pleasantly surprised if this all comes off without a hitch.

Note: 31 months DRCs because I just opted not to run out the full 48 month string. Taking DRCs extends your break even date, but of course once you pass that date the additional benefits represent a larger gain.

A BH friend did a spreadsheet for me to calculate break even dates. It had some surprising results. Option 1)At age 70 my DRC would be 50 months- October, 2012; Option 2- if I take next month, Nov, 2011- DRC is 38 months; Option 3-Take in May 2012-DRC is 44 months.

Break even date for Options 2 & 3 are exactly the same-- October 2017 and Option 1-- waiting until age 70 has a break even date of October 2018! I'm thinking hard about what to do mainly because I worked so hard on repayment of benefits (Form 521) in order to delay to age 70-- I know, I know, it's not rational for that to influence a financial decision.

Don't want to hijack this thread, but for me SS represents a unique financial asset - a lifetime inflation-adjusted annuity. The value of that annuity (the purchase price if you were to buy it as a single premium immediate annuity) goes up substantially every year you defer taking it - much more than you'd be able to generate with your investment portfolio without accepting substantial risk. So, it's a no-brainer to defer taking SS especially if you are married and joint life-expectancy applies. The only issue that is even relevant is whether you can afford to defer SS benefits based on other sources of income. If you can - then do it. You'll end up getting more off of Uncle Sam in the long run, and if you croak before your "break-even" date, I doubt that you'll care very much that you didn't.

"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard |
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"You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs

nonnie wrote:A BH friend did a spreadsheet for me to calculate break even dates. It had some surprising results. Option 1)At age 70 my DRC would be 50 months- October, 2012; Option 2- if I take next month, Nov, 2011- DRC is 38 months; Option 3-Take in May 2012-DRC is 44 months.

Break even date for Options 2 & 3 are exactly the same-- October 2017 and Option 1-- waiting until age 70 has a break even date of October 2018! I'm thinking hard about what to do mainly because I worked so hard on repayment of benefits (Form 521) in order to delay to age 70-- I know, I know, it's not rational for that to influence a financial decision.

Nonnie

I think further examination of this spreadsheet is called for. The breakeven date should be an older age for greater DRCs. Op 2 and 3 should not have the same breakeven date. In addition, the real ages for breakeven should be later than for NRA retirement, which is around age 78. Waiting until 70 could not produce a breakeven at 76 unless perhaps there is an unusually high spousal benefit being claimed for 48 months. Spousal benefits can skew add a 3rd factor and bring down the break even dates somewhat, but it makes an apples to apples comparison difficult.

Alan S. wrote: Waiting until 70 could not produce a breakeven at 76 unless perhaps there is an unusually high spousal benefit being claimed for 48 months. Spousal benefits can skew add a 3rd factor and bring down the break even dates somewhat, but it makes an apples to apples comparison difficult.

You are correct in noting that spousal benefits can skew. In my case the comparison is current spousal benefits-- which are lower @ $1000 a month vs. FRA benefits of $1210 a month. The spread sheet has been checked and double checked.